Alberta surface rights activists are hailing a Supreme Court of Canada ruling that will make bankrupt companies pay to clean up old wells.
The rock-solid reinforcement of the polluter-pays approach will benefit landowners and reduce opportunities for energy companies to wriggle out of their obligations, say activists.
The decision is expected to have far-reaching implications for the province’s showcase industry.
“I think the decision is good one way, but it’s really going to impact Alberta in a big way,” said Don Bester, of the Alberta Surface Rights Action Group.
Canada’s highest court has ruled that a trustee for a bankrupt Alberta energy company cannot ditch its obligation to clean up unprofitable wells left on agricultural land. The decision overturns an Alberta Court of Appeal ruling that allowed bankrupt energy companies to avoid the cost of cleaning up unprofitable and unreclaimed wells when their assets were sold off to creditors.
“Polluter pays was the intent of the law,” said Bester, who spent more than 30 years in the oil and gas business before turning to farming in the Innisfail area.
“If you cause the problem, you pay for it.”
Too often, that is not what was happening, he said. Smaller companies with nowhere near the assets necessary to clean up after themselves would go bankrupt. Unreclaimed wells were often dumped on the Orphan Well Association, an industry-led group that collects fees to do well cleanups.
Bester expects a lot more wells will get handed off to the orphan well program and “they can’t keep up to what they’ve got now.”
The Orphan Well Association lists 3,127 abandoned wells as of Jan. 28 on its website, but Bester said there are thousands more that have not been added to the list.
In the past, some bigger players created small companies on which to offload unprofitable wells with huge environmental liabilities, knowing the small operators had next to no chance of being able to pay.
“I call it the reverse payout or buyout,” he said. “There were companies that had the same board of directors and the same everything that had filed for bankruptcy three times.”
Bester said smaller companies will likely feel the impact the most, now that they will be expected to have the cash to clean up their messes.
“Banks are going to slow down in lending money to these small oil and gas companies in a big way,” he said.
Action Surface Rights Association president Daryl Bennett said while the Supreme Court has backed up the polluter-pay model, “they recognize there’s still a big problem in the province, that the regulator is not enforcing the rules.”
Bennett said the system that is in place to collect security deposits for later cleanup would work if it was enforced, but the government has been reluctant to rein in the industry.
“Then we would lose the jobs, we’d lose the royalties.
“They’ve waited too long. The government has kicked the can down the road so long, it has almost become an insurmountable problem.
“Something has to be done to extract some kind of funding mechanism from the industry, or the taxpayer, ultimately, will be responsible for cleaning up the mess.”
Bennett said that many of the big companies were acting responsibly, but the record for smaller players has not been as good.
“It’s time we took an honest look at what industry has done and required them to solve the problem that they’ve created.”
While the decision is likely to create quite a stir in the industry, there will be major benefits. Landowners with orphaned and potentially polluting wells on their land will now have a better chance of seeing some cleanup — or at least having old wells made safe.
“We may not be able to reclaim them for a hell of a long time. But at least you’re going to be able to make them safe, so they’re not endangering anybody,” he said.
“That’s probably the best thing that will come out of this.”
ATB Financial, which has long supported the oilpatch, is still assessing all of the implications of the decision, said president and CEO Curtis Stange.
“We will continue to support the energy industry as the backbone and the fabric of Alberta and we will do everything we can as a lender to help our customers,” said Stange.
“It is vital for the energy industry to have access to capital, access to security, and we’re going to continue to be advocates for the Alberta energy industry.”
The Alberta Energy Regulator, which took the issue to the Supreme Court, said in a statement that is is pleased with the decision and will take several weeks to review its full implications.
AER has already taken steps to get more financial information from companies and is “developing a framework to assess risk using financial, behavioural and inventory risk factors to identify which companies might be unable to meet their obligations.”
A program rolled out last year encourages collaboration between companies to reduce inactive well inventory.
The Canadian Association of Petroleum Producers said it is “encouraged” by the decision.
“CAPP believes that this judgment restores the balance between environmental obligations and creditor interests to that which existed for many years before this case.”